Dear Lifehacker,
I've worked a few jobs, and all of them have offered 401(k) retirement plans. The trouble is, when I leave a company, that 401(k) is still there and I don't know what to do with it. Now I have three or four from former companies just sitting around. What should I do with them?

Sincerely,
Fledgling Saver

Dear Fledgling Saver,
If you've switched jobs a couple of times over the course of your career and worked for companies with good retirement plans, you may have a few old 401(k)s sitting around that you're not contributing to. You're probably getting email or paper updates from every quarter or year, just to let you know how they're doing. It's great to have that money saved for retirement, but leaving it alone isn't the best way to make sure that money is working hardest for you.

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We sat down with a group of investment and financial experts to figure out what your best course of action is. Long story short: you'll want to consolidate those accounts and roll them over into an IRA. It'll take a little work, but once you're finished, those hard earned dollars will work harder for you than they ever did as 401(k)s.

Get Organized and Get Your Funds In Order

The first step to figuring out what to do with all of those orphaned funds is to get them organized. If all you're relying on are paper statements that come in the mail to tell you where your money lives, it's time to get your house in order. If you can, create accounts with each investment firm with an old 401(k), log in, and see what options you have available to you. At the very least, you'll be able to keep an eye on them in real time. At most, you'll be able to see what funds you're invested in, what their returns are, and what their historical performance has been (Ideally, you’ll have been doing this all along—if not, you may want to brush up on
how to pick your retirement investments).

This part of the exercise, though, is primarily to make sure you're aware of where all of your money lives. It's easy to lose track of which firm has which 401(k) from which of your old employers, and the longer your career history is, the easier it is to lose track of everything. Plus, it's a good opportunity to check and see which funds you're invested in. When you're sure you know where your money is, it's time to move on to the next step.

Check Your Fees

A 401(k) is a great investment vehicle for employer matching and easy pre-tax contributions, but once you've moved on from a job, it's usually a pretty bad place to keep your money. 401(k)s often come with remarkably high maintenance and transaction fees, and those fees can take a serious bite out of your retirement over the long haul if you don't do something about it. Matt Giovanisci, of
Listen Money Matters, explains:

Fees are the single biggest thing between you and high growth investments. It's well documented that nearly 80% of professional money managers do not beat the market. The reason is simple: fees. The gains advertised are before fees but what you accept net fees is less than the benchmarks that are considered "average". Thus, the more you can reduce the more gains you can extract. A simple yet staggering example is that a fee of just 1% can eat up over 24% of your potential gains over a 30 year period.

Beyond high fee funds, a 401k account through an old employer can now be subject to administration fees. These fees may normally be negotiated away as part of administering a companies plan or paid by the company itself. However, now that you're not part of the company hitting you with blanket fees across your account becomes way too easy. It's especially lucrative for banks since most people don't roll over old 401ks.

Previously mentionedFeeX gives you an easy way to see how much of your savings you're losing to fees. Check in on your old funds, and compare it to your current 401(k). By the time we're finished, you won't have to worry about those high fees anymore, but it's good to see how high they can get—and it's good to see how your current retirement plan compares.

Roll Your Old 401(k)s Into a Traditional or Roth IRA

Up to this point, we've been doing research and getting you familiar with where your money is, what it's doing, and how hard it's working for you. Now it's time to take action. All of the experts I spoke to for this piece suggested that you roll your old, orphaned 401(k)s into a traditional or Roth IRA as soon as possible. IRAs offer additional investment options that 401(k)s do not, and come with lower fees.

The best part: in many cases, you can do this online or on the phone. Just contact the investment firm that manages your old 401(k) and let them know you'd like to roll it over into an IRA. You have the option of a traditional or Roth IRA—a traditional is easiest and won't require money to actually change hands (and you don't have to pay taxes on your money when you move it from a 401(k) to a Traditional or Rollover IRA), but it doesn't come with
all of the perks that a Roth offers. To get to a Roth, you'll need to withdraw the money, then return it within 60 days (the IRS gives you a 60-day grace period before you have to treat the withdrawn money as taxable income) to open your new Roth IRA account, but even then there may be some tax implications. Before you may that move, check with your investment firm to be sure whether you'll wind up paying taxes that year for the money you moved. From there, you're in control.

In an IRA, you're in control of your own destiny, you have the freedom to invest in any mutual fund (not just the captive ones of your 401(k) plan or individual stocks). If you feel you don't know enough about investing on your own, there are many free resources for beginners available online (like Bite the Bullet Investing, for example)

Giovanisci elaborates, and suggests you go the Roth IRA route:

When you roll over into a Roth IRA the resulting cash can be invested in anything you like. Apple stock, Betterment, Vanguard funds, you name it. Before when we spoke on 1% fees, it's important to understand that in a Roth IRA you can invest in a fund like
Vanguard's Total Stock Market ETF which has a fee of 0.05%. That's how dramatically you can reduce fees just on the fund end of things.

Roth IRAs also have other benefits like being able to actually withdraw the principal, unlike a 401k. If you roll over a 401k into a Roth IRA you only need to wait 5 years until you can withdraw the principal—pretty awesome to have that sort of flexibility with your own hard earned cash.

Perhaps most importantly, you'd roll over into a Roth IRA due to the sexiest benefit of all: tax-free gains. In a Roth IRA all of your investment gains are tax free, so if you invest $1,000 and end up with $1,000,000 you will pay no taxes on that monstrous growth. If that doesn't convince you, I don't know what will!

Some people avoid 401(k)s entirely and just contribute to IRAs instead—but if your employer contributes to your 401(k) or matches your contributions, we recommend keeping it (since that’s basically free money). If you're working somewhere without any retirement plan options, an IRA is a good bet and it gives you a tax break at the end of the year. If you're not sure whether a traditional or Roth IRA is right for you,
this graphic will help you decide.

Many people have strong opinions on which is better: a Traditional IRA or a Roth IRA. Really,…
Read more Read more

To Consolidate or Not to Consolidate

While it's great to take those old, orphaned 401(k)s and turn them into IRAs, you'll still end up with accounts at three, four, or more different investment firms. That can still be a pain, especially if you'd really like to have everything in one place where you can review and manage it all easily. At the same time, it can be difficult to extract your retirement savings from one firm and deposit them into another. Is it worth the hassle? I put the question to our group, and got mixed responses.

Greg McBride, Chief Financial Analyst for
Bankrate explained that if you're worried about having all of your eggs in one basket, don't be:

From the standpoint of security of your money, individual investors are protected in the event of fraud or failure at mutual fund companies, bank and brokerage firms. The benefits of having money at more than one firm have more to do with the flexibility to invest most cost-effectively.

In other words, if you're thinking that it's safer to have some funds with Fidelity, for example, and others with Vanguard, just in case someone goes under, don't be. The real strength there is that you'll have more investment options to choose from because you can play each of the two companies against one another. However, Cowie explained that human nature comes into play here too:

Yes, consolidate, because the human mind has a poor track record when it comes to complexity. The simpler, the better. You can diversify in one place. Spreading out your accounts over many institutions adds no safety, only complexity.

In short, you'll have to decide whether or not you prefer the option of playing multiple investment firms or IRA accounts against one another versus the ease of use and simplicity of having everything in one easily manageable place.

Get Help When You Need It

Finally, if you're running into trouble organizing your finances, choosing funds to invest in, or figuring out whether you should open or contribute to a traditional or Roth IRA, make sure you
get help when you need it. Whether you talk to a financial planner, just call up your investment firm and ask to speak to an analyst, or just take some classes, make sure to get the information you need to make the best money decisions for you.

So you've signed up for your company's 401(k) plan or opened an IRA for your retirement…
Read more Read more

Regardless of what you choose to do, make sure you at least roll those old 401(k)s over into IRAs. The longer you leave them, the more you lose to fees, and the less control you have over that money in the long term. Once you have, you'll be in a position where you can contribute to them again in the future, and manage them the way you want to if the funds you're invested in don't look too good.